Do you dream of building a product or service that solves a problem and grows into a profitable business at the same time?
To get there, you can’t just focus on the problem-solving part, you also need to understand the state of your business. Setting the right KPIs will tell you exactly how you’re doing while trying to achieve those dreams.
KPI stands for Key Performance Indicator, a measurable value that indicates how effectively a business is achieving a pre-defined objective.
Setting your KPIs and measuring them correctly is a reliable way to prioritise your time and steer your start-up to continuous growth.
KPIs are often confused with Metrics. To set things straight: KPIs are the metrics you measure to find out if you’re hitting your pre-defined business goals.
1. Customer KPIs measure the relationship between your business and customers.
2. Financial KPIs Measure how your business uses its resources to achieve profitability.
3. Operating KPIs measure how happy your employees are at your company.
4. Marketing KPIs measure the success of your marketing campaigns.
5. Sales KPIs Measure your current sales funnels.
Finding the right KPIs for your start-up begins with one question: How do you make money from your users? Your answer determines your business model and the most essential metrics for your to track.
To get you started, we’ve listed five of the most common types of business models and the respective four or five core KPIs that start-ups should be tracking:
Definition: An e-commerce company sells goods in their brand name directly to consumers online. These companies usually source or manufacture and own an inventory of the goods.
Examples: Zalora, Redmart, Secretlab
Definition: A marketplace company offers a platform that facilitates the sale of goods or services between buyers and sellers, earning a percentage of the total transaction value.
Examples: Carousell, Tokopedia, Lazada, Uber
Definition: A SaaS (software-as-a-service) company sells a cloud-hosted software solution on a subscription basis.
Examples: Aspire, Mekari, AllSpark
Definition: Similar to the SaaS model, a subscription company sells a product or service on a recurring basis. The difference is that a subscription company sells directly to consumers while SaaS start-ups sell to businesses.
Examples: Ruangguru, Pahamify, ClassPass
Definition: A transactional company processes payments on behalf of customers and collects a transaction fee in return.
Examples: Grab, Shopback, Doku
Enough theory, let’s watch a KPI in action:
Say, you’ve set a goal of getting 20,000 daily active users in the next six months. Now, you’ve got 8,000 daily active users, so you’ll need an extra 12,000 users in total.
The “divide and conquer” approach applies here: Instead of focusing on the final number of 12,000 new users, keep working to achieve 2,000 new users each month.
KPIs should respond to the needs of your business model, so the most important KPIs are never the same. In general, the 5 KPIs that companies tend to track are Retention Rate, Net Promoter Score, Profit Margin, Revenue Growth and Revenue per Client.
KPIs have different levels of complexity. Generally, businesses manually calculate the simpler KPIs (for example, revenue) and use software to automate the tracking of high-level KPIs (for example, Customer Acquisition Cost vs Customer Lifetime Value).
Tracking the right set of KPIs for your business provides valuable feedback on your spending, operational efficiency, marketing efforts and customer satisfaction.
If you’re not already tracking your start-up’s performance, you should seriously consider investing some time in it. Just four or five KPIs can be the difference between success and failure.